Chapter 4 - Marketable Securites

Question 1

Trading Securities (HFT - Held For Trading)

Answer 1

• Investments in equity instruments, such as stocks, options, rights warrants or debt instruments, such as bonds, which the investor has acquired in an attempt to make profits by buying and selling for a short period of time
• Current Assets
• Purchased for the purpose of selling in the near future
• Any unrealized gains and losses (temporary) appear on I/S
• Acquistion and disposal of trading securities = Operating activity on SCF

Question 2

Availabale-For-Sales (AFS/AVS) securities

Answer 2

• All investments in marketable equity or debt instruments that do not fit the definitions of HTM or trading securities
• Current or noncurrent assets depending on the expected date of sale
• If holding period of the securities is indefinite, classified as noncurrent assets
• Any unrealized gains and losses appear on the B/S as part of Comprehensive Income in SE section. The cumulative amount is called “accumulated OCI”
• The acquisition and Disposal of AFS investments = investing activity on SCF

Question 3

Held-To-Maturity (HFT)

Answer 3

• Investments in bonds and other debt instruments which the investor has the ability and intent to hold until the due date for repayment
• Classified as noncurrent assets (unless the maturity date is less than one year from the B/S date)

Question 4

GAAP Income Statement (ON-TIDE-N-OC)

Answer 4

Operating Income
Non-Operating
Taxes
= Income continuing operations
Discontinued operations
Extraordinary gain/loss
= Net Income
Other Comprehensive Income --Accumulated OCI
=Comprehensive Income